Senate Committee approves regulation of Tax Reform and text goes to the Plenary

The Senate's Constitution and Justice Committee (CCJ) approved this Wednesday (17) the Tax Reform regulation project, which will now proceed to the Plenary under an urgent regime. The project, authored by the Presidency of the Republic, received 517 amendments during its processing in the CCJ. The rapporteur, Senator Eduardo Braga (MDB-AM), incorporated almost 150 suggestions presented by parliamentarians.

The reform, initially instituted by Constitutional Amendment 132 of 2023, aims to create two new taxes: the Tax on Goods and Services (IBS), which will replace the ICMS (Tax on Goods and Services) in states and the ISS (Services Tax) in municipalities, and the Contribution on Goods and Services (CBS), which falls under federal jurisdiction. Braga believes that regulating the reform is essential to promote economic growth and job creation, highlighting that the initiative is the first major tax reform implemented under a democratic regime in Brazil.

Main changes in the PLP 108/2024 project

Among the proposed changes, the bill alters the distribution of IBS resources, including income from financial investments, interest, and fines. Starting in 2033, the IBS will completely replace the ICMS and ISS, but these taxes will remain in effect until 2032. The proposal also extends the validity period of the revenue insurance until 2096, to offset any losses in revenue for states and municipalities.

Another point addressed the liability of digital platforms. They may be held liable if they fail to provide information about sales transactions to the tax authorities or payment service providers, and may even act as tax substitutes if the supplier fails to issue an invoice.

The bill proposes the creation of a selective tax, which will be levied on products that are harmful to health and the environment, such as sugary drinks. The maximum rate has been capped at 2%, and the levy will be phased in gradually, from 2029 to 2033. Another innovation is the split payment system, which automatically divides the tax due during the transaction, aiming to reduce tax evasion and ensure collection at the time of transaction.

What will cashback and inheritances look like under Tax Reform?

The amendment also regulates cashback (a tax refund for low-income individuals), adjusting the collection of IBS and CBS for this benefit. In the inheritance field, the proposal standardizes the collection of the Inheritance and Donation Tax (ITCMD), with progressive rates, meaning those who inherit more, pay more. Furthermore, the ITCMD charge may apply to transfers and donations via trust , a form of third-party asset management.

Regarding the Real Estate Transfer Tax (ITBI), the tax will be levied at the time of property deed registration, with municipalities potentially adopting lower rates in specific cases. The bill also details the use of the Public Lighting Contribution (CIP) by municipalities to finance urban monitoring systems, which could lead to an increase in the tax.

Supervision and management committee

During the transition to the new tax system, oversight will be educational. The bill also changes the rules on fines and creates the IBS Management Committee (CG-IBS), a public entity responsible for coordinating the collection and oversight of the new tax. The committee will be funded by the federal government during the first years and will have technical and budgetary autonomy. The proposal also establishes external oversight of the CG-IBS by the Audit Courts.

The future of accumulated ICMS credits, which will disappear with the implementation of the IBS, is also defined in the bill. Companies will be able to use these credits to offset ICMS debts or transfer them to third parties. Furthermore, the bill authorizes the exemption of Credit Rights Investment Funds (FIDC), which may be classified as investment entities, exempt from IBS and CBS.

With approval by the CCJ, the bill now heads to the Senate Plenary, where it will be discussed and voted on urgently. The goal is to implement the Tax Reform gradually, beginning the transition to the new tax model in 2025.